## Facts

- In July 2007, Leland Barber, Jr. (d/b/a B.M.E. Recycling) borrowed $225,000 from Commercial Credit Group, Inc. (Commercial) to buy a specialized machine used to grind logs into wood chips (a Peterson Pacific 5400 waste recycler).
- Barber purchased the recycler from Pioneer Machinery, LLC (Pioneer). The deal included a service/warranty package covering 6,000 hours on the machine and a limited engine warranty for five years.
- The recycler operated for only about six hours before it broke down.
- Pioneer promised Barber and Commercial that it would repair the recycler within 30 days, but the machine remained at Pioneer’s dealership disassembled and inoperable for months.
- Barber could not generate income without the recycler and defaulted on the loan.
- On November 28, 2007, Commercial repossessed the recycler and notified Barber that it would dispose of the collateral by public auction.
- Commercial scheduled the auction for December 27, 2007 (two days after Christmas).
- Commercial advertised the auction only in two general-circulation newspapers, with ads running on December 23 and December 26, shortly before the sale.
- Although Commercial knew the recycler was covered by warranties, the advertisement described the recycler as being sold “as is, where is” with “no warranty.” At trial, Commercial’s employee responsible for the advertisement admitted he knew about the warranties when the ad was placed.
- Only one person attended the auction. Commercial’s own officer placed the only bid, for $100,000.
- Commercial applied the $100,000 to the debt and claimed Barber still owed $128,168.09. Commercial sued Barber for a deficiency in January 2008.
- In March 2008, several weeks after the auction and after filing suit, Commercial sold the recycler in a private sale for $190,000.
- After a bench trial, the superior court concluded the public-auction disposition was not commercially reasonable, denied a deficiency judgment, and taxed costs against Commercial.
- Commercial appealed.

## Issues

1. Whether the trial court erred in concluding Commercial’s public-auction disposition was not commercially reasonable under North Carolina’s UCC Article 9 (including N.C. Gen. Stat. §§ 25-9-610 and 25-9-627).
2. Whether, under N.C. Gen. Stat. § 25-9-626, Commercial was entitled to a deficiency judgment despite failing to show what a commercially reasonable disposition would have yielded.
3. Whether the trial court erred in taxing costs against Commercial.

## Decision

- The North Carolina Court of Appeals affirmed.
- The court upheld the finding that the auction was commercially unreasonable based on the timing of the auction, limited/general advertising on dates immediately preceding the sale, and the misleading “no warranty” description despite known warranties.
- The court affirmed denial of a deficiency judgment because, once commercial reasonableness was placed in issue, Commercial had the burden to prove the amount that would have been realized in a commercially reasonable disposition and failed to do so; the trial court therefore properly treated the collateral as worth at least the amount of the debt.
- The court affirmed the order taxing costs against Commercial because Barber prevailed and the trial court had authority and jurisdiction to assess costs.

## Legal Principles

- A secured party may dispose of collateral after default, but every aspect of the disposition (method, manner, time, place, and other terms) must be commercially reasonable. N.C. Gen. Stat. § 25-9-610.
- Commercial reasonableness can be evaluated by whether the sale aligns with reasonable commercial practices for the type of property and by examining the sale’s marketing, timing, and description of the collateral, including known warranties. N.C. Gen. Stat. § 25-9-627.
- In a non-consumer transaction, when the debtor places the secured party’s compliance with Article 9 in issue, the secured party bears the burden to prove compliance and to prove what a commercially reasonable disposition would have produced. N.C. Gen. Stat. § 25-9-626.
- If the secured party cannot prove the amount that would have been realized in a commercially reasonable disposition, the court may limit or eliminate any deficiency recovery because the secured party has not established the required offset/value baseline under § 25-9-626.
- A large difference between the auction result and a later sale price may support a finding that the earlier disposition was commercially unreasonable when tied to defective marketing or misleading sale terms.
- When judgment is entered for the debtor in a deficiency action, the trial court may tax costs against the creditor as the losing party.

## Conclusion

The Court of Appeals affirmed the trial court’s ruling that Commercial’s minimally advertised, poorly timed auction—made worse by advertising “no warranty” despite known warranties—was not commercially reasonable, and because Commercial failed to prove what a commercially reasonable sale would have brought under § 25-9-626, it could not recover a deficiency and was properly assessed costs.


Commercial Credit Group, Inc. v. Barber, 682 S.E.2d 760, 199 N.C. App. 731 (2009)